UPDATE 1-Ireland rings death knell over Anglo with deposit sale

Thu Feb 24, 2011 1:40pm EST

Related Topics

* Sale of deposits and associated assets part of EU/IMF deal

* Infusion of deposits will boost funding of AIB, Irish LIfe

* Anglo and Nationwide staff to move with deposits

(Adds more detail, shares)

By Carmel Crimmins

DUBLIN, Feb 24 (Reuters) - Ireland's High Court approved the sale of deposits from Anglo Irish Bank and Irish Nationwide to local rivals on Thursday, sounding the death knell for two lenders synonymous with the country's financial woes.

In a badly-needed boost to its funding, Allied Irish Banks (ALBK.I) purchased around 8.6 billion euros in deposits in Ireland, the UK and the Isle of Man from Anglo [ANGIB.UL] as well as senior bonds issued by the state-run National Asset Management Agency (NAMA) with a face value of 12.2 billion euros.

In return for the transfers, AIB, which was effectively nationalised late last year and suffered a large outflow of corporate deposits, will transfer 3.5 billion euros to Anglo and purchase Anglo's Isle of Man unit for 200 million euros.

Bancassurer Irish Life & Permanent (IPM.I) will purchase 3.6 billion euros worth of deposits from Irish Nationwide [IRNBS.UL] as well as senior NAMA bonds and other bonds with a value of around 3.7 billion euros in return for a 2.3 million euros transfer and the purchase of Irish Nationwide's Isle of Man unit for 100 million euros.

"I am satisfied that I should make the transfer orders in all of these cases," Justice Brian McGovern told the High Court.

Overall there were eight bidders for the deposits.

The process triggered a spike in emergency borrowing from the European Central Bank last week after the two state-run banks withdrew assets from the normal week-long ECB borrowing facility and swapped them for emergency overnight loans to ensure a quick sale. [ID:nLDE71I08C]

Thursday's sale will end Anglo Irish's days as a bank in Ireland although it will still retain a banking licence during the time it takes to wind down its remaining loans. Deposits sourced through its branches in Germany, Austria and Jersey will not be affected by the transfer.

Irish people view both Anglo Irish and Irish Nationwide as poster boys for the reckless property lending that triggered Ireland's economic meltdown and resulted in Dublin going cap in hand to the EU and the IMF for a bailout last year.

Under the EU/IMF deal, Ireland has pledged to shut down Anglo Irish and Irish Nationwide and shrink its other lenders to reduce their dependence on emergency funding from the ECB and its own central bank.

AIB and Irish Life & Permanent, which does not have a big deposit-gathering branch network, will use the fresh deposits to reduce their reliance on such emergency funds.

Anglo Irish, which was nationalised in 2009 and holds the record for the country's worst corporate loss, had close to 10 billion euros in customer deposits down from around 11 billion euros at the end of last year.

It lost 16 billion euros in mainly corporate deposits in 2010 as fears over Ireland's debt crisis rose ahead of the EU/IMF bailout.

Less than a billion of deposits will stay with Anglo because they are used as collateral on loans or are used to collect payments.

Some 237 Irish Nationwide employees associated with the deposit business will automatically transfer to Irish Life & Permanent while 210 Anglo employees will transfer to AIB. (Editing by Ron Askew)

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